An amazing amount of research, development, and human capital has gone into improving and advancing the cell phone. Today’s smartphone is a wondrous invention that scarcely resembles the early cell phones of two decades ago.
The investments that got us to the smartphone easily total in excess of $100 billion, if we account for the research and development spending of the smartphone manufacturers and their major suppliers. The awesome spending by some of the world’s largest companies make it inevitable that numerous intellectual property clashes have arisen, and these disputes have been so contentious that they have undoubtedly affected investment in information technology. For instance, the various conflicts over IP ownership among Apple, Google, Microsoft, and Samsung as well as several of their major suppliers and other industry stakeholders have continued unceasing for years, prodding each of these companies into spending billions of dollars to acquire troughs of patents merely to use as ballast for future patent litigations.
Part of the reason for this litigiousness is that cell phone sales generate an enormous amount of money, which means that lawsuits can potentially pay off even if there is only a small chance of a patent lawsuit succeeding. But the main reason for this conflict is that the United States doesn’t do a great job filtering out weak and broad patents. The low threshold of substantiating evidence put on patent applicants has engendered a world where there exist a tremendous number of patents within many of the most common consumer devices. Thus, it’s all but inevitable that many of these closely resemble one another.
Congress eventually came to grasp the potential negative impact that such abusive patent suits could have on the economy, and many members from both parties have supported legislative efforts to curb frivolous patent assertion. In 2015, the U.S. Patent and Trademark Office (USPTO) appointed its first ever Patent Quality Czar as part of a multifaceted initiative dedicated to enhancing patent quality. While these efforts are a step in the right direction, more must be done: Even if we grant fewer weak patents, we still have to adjudicate the plethora of questionable patents already issued.
However, the USPTO is not the only entity that scrutinizes the validity of patents. The U.S. International Trade Commission currently finds itself in the middle of a dispute between NVidia, a graphics company, and Samsung, the largest smartphone producer in the world.
NVidia has alleged that Samsung (and American semi-conductor behemoth Qualcomm) infringed on patents related to its graphics chips, and asked that the ITC ban the importation of Samsung phones that use the Qualcomm chip in question into the United States. Such an action would be a bombshell; an ITC-granted exclusion order would amount to an enormous penalty for both Samsung and U.S. consumers. Unlike Apple, which gets most of its sales from its high-end models, Samsung produces models at a wide range of price points, and happens to be the largest producer of cell phones in the world by far. Not only would such an exclusion order unduly punish Samsung and Qualcomm, but it would also needlessly complicate the lives of millions of Americans.
Excluding Samsung’s low-end models from the market would drastically reduce supply and inevitably raise smartphone prices. Others have pointed out that excluding so many modestly priced phones would have a disproportionate impact on lower-income households, something that would be especially deleterious since a sizeable fraction of this population accesses the Internet solely via smartphones.
The ITC is simply not the proper venue for adjudicating patent claims like this: Patent infringement determination isn’t their staff’s area of expertise, and the either-or responses available to the Commission (either they find Samsung innocent or else completely ban the importation of most Samsung phones) is unnecessarily draconian. Federal Courts, where NVidia has also lodged the exact same claim, are much better positioned to rule on patents.
At this point it seems like Samsung and smartphone consumers dodged a bullet; the October 9th ITC initial determination found no infringement of two NVidia patents and deemed a third invalid. But future ITC IP determinations may not turn out so copacetic.
In a global economy, intellectual property disputes are unavoidable, of course: U.S. companies doing business in Asia find themselves constantly frustrated at their inability to get protection for their intellectual property. The American system, despite its flaws, affords virtually the best production of patents and other intellectual property anywhere, and it’s a reputation we want to preserve.
But adjudicating a dispute with potentially enormous economic consequences both for the company and the economy via the ITC benefits no one, and it’s a responsibility the commission would rather not have. When in doubt, the ITC should do no harm and disputes about intellectual property should be handled elsewhere.
Ike Brannon is a Senior Fellow with the George W. Bush Institute and President of Capital Policy Analytics, a consulting firm in Washington, D.C.
